Interim budget announcement this year by finance minister in charge Piyush Goyal had a host of packages and programmes aimed at lower middle class and farmers. Besides cash benefit transfers to farmers (Rs 6,000 a year), the exemption in income tax till Rs 5 lakh would (effectively making zero tax for income upto Rs 10.5 lakh if they avail of various exemptions), is expected to leave money with consumers to spend. This may fiscally expansionary, but is likely to benefit rural focused consumption companies. We explore what would this mean for mutual funds who have Bharat as an investment theme.
Five key pro-farmer announcements made in the interim budget 2019-20
1) To provide an assured income support to the small and marginal farmers, government is launching a a programme namely “Pradhan Mantri KIsan Samman Nidhi (PM-KISAN)”. Under this programme, vulnerable landholding farmer families, having cultivable land upto 2 hectares, will be provided direct income support at the rate of Rs 6,000 per year. This income support will be transferred directly into the bank accounts of beneficiary farmers, in three equal instalments of Rs 2,000 each. This programme will be funded by Government of India. Around 12 crore small and marginal farmer families are expected to benefit from this. The programme would be made effective from 1st December 2018 and the first instalment for the period upto 31st March 2019 would be paid during this year itself. This programme will entail an annual expenditure of Rs 75,000 crore.
2) Govt increased the allocation for Rashtriya Gokul Mission to Rs 750 crore in the current year itself. And announce setting up of “Rashtriya Kamdhenu Aayog” to upscale sustainable genetic up-gradation of cow resources and to enhance production and productivity of cows. The Aayog will also look after effective implementation of laws and welfare schemes for cows.
3) Government has decided to create a separate Department of Fisheries.
4) Finance minister proposed to provide the benefit of 2% interest subvention to the farmers pursuing the activities of animal husbandry and fisheries, who avail loan through Kisan Credit Card. Further, in case of timely repayment of loan, they will also get an additional 3% interest subvention. Thus, taking the total subvention to 5% per year.
5) When natural calamities strike, farmers are generally unable to repay their crop loans. Presently, the crop loans are rescheduled for such affected farmers and they will get benefit of interest subvention of 2% only for the first year of the rescheduled loan. The government has now decided that all farmers affected by severe natural calamities, where assistance is provided from National Disaster Relief Fund (NDRF), will be provided the benefit of interest subvention of 2% and prompt repayment incentive of 3% for the entire rescheduled period of their loans.
All these changes combined with tax exemption to lower income group and several facilities like subsidised healthcare facilities would reduce expenses of lower income group, thereby increasing the disposable income of this segment. With this additional cash in hand this segment will strengthen India’s consumption story even more. We think we’ll see improved business activity in sectors like consumer durables – refrigerator, washing machine, air conditioner, automobiles, seeds & fertilisers, farming equipment, real estate – building materials, paints, ply etc.
Emergence of rural focused funds
Last year we saw the emergence of mutual fund schemes having rural growth as a theme. This was owing to several government initiative like MGNREGA, Housing for all, Electricity for all, Crop Insurance for farmers etc. These initiatives were supposed to improve the consumption in rural area and funds were poised to benefit from the same.
ICIC Mutual Fund launched five funds in the series ICICI Bharat Consumption and garnered total AUM of over 1750 crore. Similarly, Aditya Birla Sun Life Mutual Fund launched two funds in Resurgent India Fund series with rural theme garnering total AUM of Rs 680 crore.
Performance of rural focused funds
|Scheme Name||Launch Date||Since Inception (%)|
|Aditya Birla Sun Life Resurgent India Fund – Series 6||12-Mar-18||-12.8|
|Aditya Birla Sun Life Resurgent India Fund – Series 7||06-Apr-18||-18.8|
|ICICI Prudential Bharat Consumption Fund – Series 1||11-Apr-18||-0.7|
|ICICI Prudential Bharat Consumption Fund – Series 2||04-May-18||-3.7|
|ICICI Prudential Bharat Consumption Fund – Series 3||18-Jul-18||1|
|ICICI Prudential Bharat Consumption Fund – Series 4||23-Aug-18||-3.8|
|ICICI Prudential Bharat Consumption Fund – Series 5||28-Nov-18||0.4|
While the performance of above schemes doesn’t look encouraging, the theme is powerful. Whether it will materialise in next 3 years or 5 years or 10 years, we can’t foresee. What we can say is we are likely to see more such schemes being offered by mutual funds in the coming months.
We suggest investors to keep looking for good opportunities to invest while the equity valuations are reasonable and market momentum is flat. Rural theme could be one of the promising themes to play out over medium to long term.